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Cover of: Redundancy Pay and Collective Dismissals
Laszlo Goerke

Redundancy Pay and Collective Dismissals

Section: Articles
Volume 59 (2003) / Issue 1, pp. 68-90 (23)
Published 09.07.2018
DOI 10.1628/0015221032906153
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  • 10.1628/0015221032906153
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Summary
Redundancy payments for collective dismissals are incorporated into a Shapiro-Stiglitz model of efficiency wages. It is shown that a lump-sum payment will lower wages, leaving employment and welfare unaffected if there are neither wage-dependent taxes nor additional firing costs. If payroll taxes exceed firing costs, employment and welfare will rise with redundancy payments. If these payments are also a function of previous wages or reduce unemployment benefits, positive employment effects will be mitigated or reversed. A substitution of wage-dependent for lump-sum redundancy payments can lower employment, allowing for a continuous variation of effort.